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An in-depth read on the compliance requirements for money services businesses across the region

4. India

Current Compliance Landscape

In recent times, India has been cracking down on financial institutions and money changers who fail to comply with compliance laws. India had been on the regular follow up list of the FATF since 2010 due to issues like terrorist financing and money laundering, but has actively addressed these concerns leading to them being taken off the list at the 2013 plenary. It was noted however that despite more than a thousand money laundering pending investigations, there were few convictions. This is not a sign that money changers should let their guard down as slow Indian courts mean that cases of ML or TF brought against these money changers could drag on for years, impacting their livelihood.

Money changers also face increasing pressure to conduct proper due diligence on their customers due to the economic climate. Failure to do so could result in negative repercussions as seen in the examples below.

As the overall economy deteriorates, public Indian banks are dealing with ballooning bad loans; cases of wilful defaults, corruption and even outright fraud abound. The health of public banks is of concern to Indian money changers as they are a major source of the Indian Rupee (IDR) stock. The issue of Indian bad debt rose to national consciousness when Kingfisher tycoon Vijay Mallya ‘left India’ after defaulting on more than US$1 billion of loans in March 2016.

Money changers should note that when tycoons want to leave India, they are likely to change vast quantities of foreign currencies. As such, they should be suspicious if they see the same person sell large sums of IDR on a regular basis. These agents might even be willing to allow money changers to earn a wider spread than usual to facilitate a hassle free transaction.

However, such gains are illusions as seen in the case of the 1 lakh penalty imposed on Vyavsayik Sahkari Bank Limited in December 2015 when it failed to conduct proper KYC checks and failed to submit the Cash Transaction Report (CTR) and Suspicious Transaction Report (STR). Banks usually have strong political connections, but it doesn’t immunize them against regulatory repercussions. The case illustrates the necessity of proper regulatory reporting.

In another case, The Times of India reported that RBI moved to cancel the licenses of 201 money changers which included household names such as American Express and Sterling Holiday Financial Services on March 2016. This massive operation was launched as the RBI discovered that these entities had violated regulations.. Biz4x: The Changing Compliance Landscape for Money Changers 22 The regulations which they violated include failing to start operations on time, failing to keep a minimum net owned funds of 25 lakh for single branches and 50 lakh for multiple branches, mismatch of conversation rates and improper bookkeeping.

Besides the monetary losses, all these negative reports had an adverse impact on their reputations. Offences such as the mismatch of conversion rates is a fraudulent practice which the RBI is currently under pressure to root out in the wake of the public banking crisis.

India Law Highlights
1. Prevention of Money-Laundering Act (2002)

Section 3 states that:

Offence of Money Laundering Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money-laundering

Section 4 states that:

Punishment for money-laundering Whoever commits the offence of money-laundering shall be punish-able with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and also be liable to fine which may extend to five lakh rupees

In other words, money changers who exchange tainted money would be deemed as assisting in money laundering and they can be jailed for seven years and fined five lakh.

As bad as that may sound, the punishment actually got worse when the Indian Parliament amended the act in 2012.

Effective from 03 January 2013, the threshold limit of 30 lakh, before a money laundering case can be initiated against the money changer has been done away with. In addition, the rules have been made stricter where the mere ‘possession’ of the proceeds of crime constitutes an offense.

The only way to prevent this is to take the screening of clients more seriously. Another factor of consideration is the speed of the Indian Courts. According to the Indian Times, there has only been one successfully prosecuted case in the past 10 years since 2013. However, even if you are innocent, the taint of suspicion can hang over a money changer’s business for the next decade.

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